When one refers to a company, property, or investment as "highly leveraged," it means that item has more debt than equity. The concept of leverage is used by both investors and companies. Investors use leverage to significantly increase the returns that can be provided on an investment.

What happens if leverage ratio is high?

A higher financial leverage ratio indicates that a company is using debt to finance its assets and operations — often a telltale sign of a business that could be a risky bet for potential investors. ... Creditors also rely on these metrics to determine whether they should extend credit to businesses.

What leverage ratio is too high?

This ratio helps a lender determine if the company is financing operations with debt or equity. A high ratio indicates that the business owners may not be providing enough equity to fund a business, so a ratio above 2 is considered risky.